Gap expands Athleta women’s athletic apparel line

NEW YORK (MarketWatch) — While Gap Inc. seeks to right its merchandise missteps and improve sales at its three flagship chains in North America, there’s one bright spot: the growing upscale women’s athletic-apparel brand Athleta.

On Wednesday, the San Francisco-based company
GPS, -2.50%
opened Athleta’s third location on New York’s Upper West Side, the label’s first on the East Coast, as part of its plan to use stores to accelerate the growth of the 13-year-old catalogue-and-Internet-sales label it bought in 2008. The company declined to disclose the size of the brand, except to say it has “millions” of customers.

As an example of the appetite for the brand, it already has about 10,000 customers who live within a couple of miles of the new store, said Tess Roering, the brand’s vice president of marketing and creative.

The two other stores are in the San Francisco area: a smaller test store opened last year and a flagship shop opened in January. Gap plans to open the fourth location, also in New York, later this week.

In total, Gap plans to open eight to 10 Athleta stores in six markets by the end of the year with 50 expected by the end of 2013, said the brand’s general manager, Scott Key. The stores in San Francisco have lifted total Athleta sales in the area by fourfold since January and helped the brand to attract new customers, Key said.

The brand, which doesn’t typically discount and sells apparel including $158 hiking jeans with water-resistant and moisture-wicking features, boasts a performance in stark contrast to Gap’s three flagship brands, Gap, Old Navy and Banana Republic.

Athleta’s sales have risen at least 10% each year in recent years and are “very profitable,” Key said.

Gap

Athleta store. .

Gap, on the other hand, has struggled with slowing North American sales and merchandise mistakes at its three larger brands. The latest disappointment came last week when the company reported declining July same-store sales across the three units.

While Athleta may be a bright spot for Gap, it’s too small to move any needle, analysts said. Gap’s other store-openings plan is outside of the U.S., with the Gap and Old Navy brands in North America having more store closings than openings planned this year.

The success at Athleta also won’t likely help the other chains. It’s run independently without design influence from or sharing with the other brands, analysts said.

Athleta’s growth has been helped by its reputation for using designers who are athletes themselves. It also attracts customers by adding fashion appeal. The New York store, for instance, touts free hemming for pants, skirts and dresses. It features items such as $54 skort, or skirt and short in one piece, with pleats. Running tops feature ruching details or twisted straps.

It’s also operating in a sweet spot where such athletic clothing as yoga, hiking and running apparel is seeing nice growth, especially in the higher-priced segment. North Face jackets and Reef sandals maker VF Corp.
VFC, -0.84%
is also expanding its acquired Lucy brand. Vancouver-based Lululemon Athletica Inc.
LULU, +0.57%
has also outperformed the broader retail segment.

“It’s not a market-share taking situation,” Key said. “More women are choosing to lead an active lifestyle.”

The $31 billion women’s athletic apparel market last year rose in the low single digits, but gained “well into the double-digit rate” in the upper end of the market, he said, citing NPD Group data.

Athleta’s target customer has an average household income of at least $100,000, he said.

“As we open stores, our opportunity to grow is very present,” he said. “We are building awareness and bringing new customers to stores. Opening stores is going to accelerate the growth.”

As part of the growth strategy, Gap is investing in the brand’s first major national advertising campaign this year, including ads in 11 magazines from Self to Real Simple. It’s also advertising in New York Times to promote the New York store openings.

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